Just as the FTC was ignoring the big competitive threat of Wal-Mart, Kroger, Safeway, and Costco while focusing on a battle between two small players, now the FTC is worried about a monopoly among conventional supermarkets just as the food market is fracturing. This letter gives us good reason to look at the situation:

I would deeply appreciate your perspective on the Haggen purchase of nearly 150 Albertsons and Vons bannered stores in The West.

How on Earth can the management team of a 16-store boutique niche marketer possibly hope to profitably operate these stores (using a third-party distributor no less) in what is one of the most competitive markets in the USA?

What venture capitalist would risk money on such a silly proposition?

How can the FTC honestly claim that the grocery market must be forced to remain competitive when Ralphs, Wal-Mart, Trader Joes, Costco, Gelsons, Bristol Farms, Whole Foods and countless ethnic retailers crowd the market? If there is one thing this grocery market doesn't lack, it is aggressive competition.

There must be more to this story... it just doesn't make sense. Can you shine some light on this?

Next spring, Southern California shoppers will see a new name replacing some of their old grocery standbys: Haggen Inc.

The tiny Pacific Northwest chain is buying 146 Vons, Pavilions, Albertsons and Safeway stores, including 83 in California.The Federal Trade Commission ordered them sold as part of the merger of Albertsons and Safeway earlier this year.

That translates into an eye-popping 811% expansion for the Bellingham, Wash., company, which currently operates 18 stores in Oregon and Washington.

"This was a once-in-a-lifetime opportunity," said Bill Shaner, the newly appointed chief executive of Haggen in the Pacific Southwest. "They are great stores in a very dynamic marketplace. The chance to grow the brand was very unique."

The chain did not disclose financial details. Some analysts pegged the deal at $1.4 billion to $2 billion.

Landing in the highly competitive Southland grocery market will be a challenge for Haggen, especially as traditional grocers are squeezed by local favorites like Trader Joe's and deeper competition from the likes of Wal-Mart Stores Inc. and Target Corp., which have both expanded their grocery offerings, analysts said.

Shan Li also quoted industry analysts including the storied Burt Flickinger of Strategic Resource Group and the Pundit:

"It's certainly no slam-dunk," said Jim Prevor, a food analyst and founder of PerishablePundit.com. "The core business of operating a conventional supermarket is really a threatened being."

Shaner said Haggen has distinguished itself with a heavy emphasis on fresh produce and quality meats and seafood. That focus will be reflected in the new stores once they are re-branded as Haggen starting in 2015, he said.

"Haggen is between an Albertsons and Vons and what you might see to some extent in a Whole Foods," Shaner said. "You will see a little tweak in assortment, a little tweak in the quality of the offerings."

The company will also keep existing store employees and managers, Shaner said, expanding its worker base fivefold to 10,000.

Observers said that expanding the company to 164 stores in five states will give Haggen the muscle to negotiate more effectively with suppliers and make a real push into new territories.

"You really need a minimum of 100 stores … to have the buying power and market share to have a meaningful impact in the marketplace both with competitors and consumers," said Burt Flickinger III, managing director of Strategic Resource Group.

But Haggen will face the challenge of introducing its unknown brand in places such as Los Angeles, where shoppers have different preferences and a multitude of supermarkets to choose from. Competition is fiercer than ever before, with newer rivals such as dollar stores increasing their produce aisles and online retailers such as Amazon.com testing grocery delivery.

"Haggen means something locally, but it's a name unknown for most of these new areas," Prevor said. "That means very substantial expenditures to build a brand in those areas."

At the same time, the chain must now deal with operating a vastly bigger organization. There is a danger it will run into trouble exporting its culture to the larger group of stores and will lose some of the uniqueness that has made it successful, analysts said.

"It's a brilliant or bankrupt strategy," Prevor said. "When you are talking about basically increasing the business from one tiny geography to a massive scope down the West Coast, you run the real risk that they will fail."

But Flickinger said the chance to expand so rapidly with one swoop probably was too tempting to pass up.

"It is arguably the best opportunity to expand cost effectively and in the West Coast for the last 15 years," he said.

Burt certainly has it right. For an ambitious retailer with private equity backing, this is an unusual opportunity. Haggen does a great job — especially with fresh — and we can certainly wish the team well in this expansion.

That being said, the correct way to look at this is that Haggen is just the vehicle being used. What this is really about is a Florida-based private equity firm, Comvest Partners. Comvest acquired a majority stake in Haggen in 2011. Just in December 2014, presumably in conjunction with this deal, Haggen hired Bill Shaner to serve as CEO in the Pacific Southwest. Mr. Shaner had a long career with Supervalu and, most recently with the Save-a-Lot division, where he was Executive Vice President and Chief Operating Officer.

So the way to think about this may be that a private equity firm bought these stores and hired an experienced executive to run them.

So why get Haggen involved at all? That is mostly due to the FTC. In this case, persuading the FTC that this divestment of stores will create a viable competitor for Albertsons/Safeway is the key to the whole thing.

The FTC might feel that a private equity firm just hiring a CEO might not be viable and that, in two years, all the stores will be furniture stores or real estate plays. Here, with a buyer committing to rebrand the stores with a proven concept, the FTC is much more likely to bless the divestment.

What happens then, though, is not clear at all.

Bringing an unknown brand into new geographies is always difficult, and Albertsons and Safeway know exactly which stores are highly profitable, so they can be expected to compete aggressively in those areas, including opening new stores themselves.

Supervalu will supply the existing 18 Haggen stores and the additional 46 stores in the Pacific Northwest. It also will provide IT and other support for the whole chain.

Unified Grocers will lose the supply contract for the existing 18 Haggen stores but will pick up 100 stores that Haggen is taking over in California, Arizona and Nevada.

Charlie’s Produce is opening a new southern California division to expand along with Haggan and has the primary produce-supplier appointment for all the stores.

Financial terms were not disclosed but Albertsons/Safeway needed this deal to finalize their merger, so they probably gave a concessionary price.

So, to answer Roger’s questions:

1) Nobody is really expecting Haggen’s management team to suddenly run a giant supermarket chain across the west. The existing team will expand in the northwest, and a new team is being brought in for the new western states.

2) Comvest Partners thinks the risk/reward ratio is worth the risk. If this works, they will have a big supermarket chain and probably do rollups on smaller local chains.

3) If it doesn‘t work, the price was probably cheap enough that Comvest feels protected by the real estate value.

As far as why this is all necessary, it is because the FTC has an antiquated perspective. It was 21 years ago that we wrote an article in sister publication, PRODUCE BUSINESS, titled “Death By A Thousand Cuts”, in which we said that there is an antiquated perception of the “big issue” being supermarkets competing against supermarkets. The truth is that all these operations are at risk from competition from Amazon Fresh, Aldi, Trader Joe’s, Costco, Wal-Mart Supercenters and many more formats.

What the FTC is really doing is a shame: It is weakening Albertsons/Safeway in the battle against new formats. Albertsons/Safeway had to sell these stores at a discount because the only buyers that could be considered were those who the FTC would deem viable as supermarket operators. The people at Comvest and Haggen will be the beneficiaries of the limited scope of the FTC’s vision and will laugh all the way to the bank.

Jim Prevor, a leading produce industry analyst, said the growers and distributors would be "foolish" to ignore the coverage.

He referred to an informational graphic published with The Times' series that showed how produce moved from a Mexican farm with abusive labor practices through middlemen to leading U.S. supermarket and restaurant chains.

Prevor called the chart "a game-changer."

"It is telling retailers from Whole Foods to Wal-Mart that you own your supply chain and you will be held responsible for all that occurs within it," Prevor wrote in his Perishable Pundit blog.

In contrast, the Coalition of Immokalee Workers also weighed in. We highlighted the group’s “Penny-a-Pound” efforts and analyzed the subject in pieces such as these:

The LA Times grabs the food industry by the hand and drags it on a nightmare tour through the inhumanity of Mexico’s vegetable fields…

How will this modern-day Christmas Carol end? Will the industry respond with a collective “Bah Humbug!”? Or might a “God bless us, every one!” be in the cards?

…Well, if the “Perishable Pundit’s” post on the series is any indication, the term “Bah Humbug” certainly comes to mind. Here are just a few quotes from the Pundit, the nom de blog of produce industry insider Jim Prevor, who had more than a few bones to pick with the series:

On child labor:

“Once again, though, there is no explanation of what these children would be doing if they were not working. Would they and their families really have better lives? Or would it just assuage the moral feelings of affluent American consumers?”

On why workers “choose” to take jobs in such horrific conditions:

“Virtually every one of them has a friend or relative who has already gone down this path. So they have intimate acquaintances with full knowledge of the pros and cons of working in the fields and yet they choose to do so.

This is really the important question to study. Why do they choose to do so? The almost certain answer is that, difficulties and all, they believe this path offers a better alternative than any other alternatives available to them.”

On whether the conditions described in the series constitute “exploitation” given the poverty of those who work the fields:

“There is hardship without a doubt, but for the poor life is always hard and it is odd to call “exploitation” the providing of an alternative that people view as a better alternative than any other choice they have.”

On the illegal withholding of workers’ wages by their employers until the end of the season:

“Perhaps the workers don’t want their wages given while they are encamped because they might get robbed or they might be tempted to spend the money rather than save it for their families.

Maybe a little more reporting would reveal why the wages are withheld in the first place. What happened in the past when, say, weekly or monthly payments were followed? The article is silent in this area.”

On what would happen if conditions were to improve in Mexico:

“Perhaps the biggest issue, which the article does not explore at all, is what the consequences would be of upgrading the situation of the field hands. Suppose there was really an effort to give workers the kinds of environments that would make Americans proud of their food supply chain? The one thing that is for certain is it would raise the price of the product and, as it did so, the labor situation would change.

Other growing areas would become more competitive and would take business away from the Mexicans.”

Yes, the post reads like a parody of Dickens, and given the timing of its publication, that really would be its most charitable reading. Except, it isn’t a parody. The spirit of Scrooge is truly strong in this one. The only thing missing from his response to the Times’ findings was an exasperated shout of “Are there no poor houses!?”

Perhaps, before moving on, it is worth noting that a 12-yr old girl by the name of Alejandrina Castillo (pictured below), who is featured in the third installment of the LA Times series which focuses on child labor, shared many of her own thoughts on the question of “choice” in the investigative report. Her quotes, scattered throughout the piece, are enlightening (and more than a bit appalling, frankly, given that the Pundit must have read these same quotations before penning his post):

“I work because… we need money to eat things.”

Alejandrina looked in the distance for the food truck. It was almost noon, five hours since she had a tortilla for breakfast. The sky was cloudless. It would be another 90-degree day in the palm-lined coastal farmland of southern Sinaloa. “I wish I was home with my baby brother,” she said.

Alejandrina’s feet ached and she shivered at night from the cold. She never complained. She understood that when the crops had been picked in one place, it was time to move on. “If we stay, we will die of starvation,” she said.

She once dreamed of becoming a teacher. “I think that it’s too late because … I failed myself, for not being in school,” she said. “And school is very important, so you can be someone.”

Now, her life was defined by the filth and dreariness of fieldwork. She said she could use some better shoes: “Here we suffer…. Here there is nothing but mud, all mud.”

So, that’s a different cut on things. Guess the Pundit and Alejandrina are just going to have to agree to disagree.

Although, in the end, the CIW felt the Pundit had shown some heart:

But just as Scrooge’s dark night of soul-searing visions and denial gave way to the light of a new day and redemption, the Pundit’s post contains within it the seeds of self-awareness that will, ultimately, lead to change, whether the “Bah Humbug” responders want it or not. Here’s the final message from his post:

But transparency on the supply chain is increasingly going to be demanded, and this article is neither the first nor the last. The newspaper’s effort in putting together graphs showing the flow of produce is a game-changer. It is telling retailers from Whole Foods to Wal-Mart that you own your supply chain and you will be held responsible for all that occurs within it.

And on this count the Pundit is, finally, quite right…..

Although, overall, the CIW was not pleased with the Pundit:

As we pointed out in that first post, the reader of the “Pundit’s” response would have been forgiven if he or she had mistaken it for a holiday season parody, a sort of 21st century Scrooge’s take on the grinding poverty, rampant child labor, and humiliating abuse uncovered in Mexico’s fields. Mr. Prevor wondered out loud whether the countless children — many of them under the age of 12 — working in the fields weren’t better off picking tomatoes and peppers than engaging in any imaginable alternative pursuit (say, for example, receiving an education in a public school).

He asked whether the workers whose wages were found to be illegally withheld by their employers until the end of the season weren’t themselves better off rather than exposing their savings to the risk of being stolen, or spending their earnings recklessly on things of their own choosing. And so forth. His arguments attacking the Times’ reporting were so extreme as to be laughable.

Except Mr. Prevor is not — intentionally at least — in the business of writing satire. His work is widely read, and his opinions widely respected, in the U.S. produce industry. And so we asked, in the spirit of the season, if the LA Times series would not serve as a long-overdue awakening for the US food industry, a sort of modern-day Christmas Carol for the multi-billion dollar retail food corporations that profit so handsomely from buying and selling the produce picked in such unconscionable conditions…

The reference to Charles Dickens’ classic A Christmas Carol is apt, but perhaps in ways that the CIW had not intended.

The classic essay critiquing the work of Charles Dickens was written by George Orwell and was originally published in 1940 in his book Inside the Whale and Other Essays, and in the essay titled simply “Dickens,” Orwell spoke to the story of A Christmas Carol and to similar themes that appear throughout Dickens’ work:

His whole ‘message’ is one that at first glance looks like an enormous platitude: If men would behave decently, the world would be decent.

Naturally this calls for a few characters who are in positions of authority and who do behave decently. Hence that recurrent Dickens figure, the good rich man.

This character belongs especially to Dickens's early optimistic period. He is usually a ‘merchant’ (we are not necessarily told what merchandise he deals in), and he is always a superhumanly kind-hearted old gentleman who ‘trots’ to and fro, raising his employees’ wages, patting children on the head, getting debtors out of jail and in general, acting the fairy godmother.

Of course, he is a pure dream figure, much further from real life than, say, Squeers or Micawber. Even Dickens must have reflected occasionally that anyone who was so anxious to give his money away would never have acquired it in the first place.

Mr. Pickwick, for instance, had ‘been in the city’, but it is difficult to imagine him making a fortune there. Nevertheless this character runs like a connecting thread through most of the earlier books. Pickwick, the Cheerybles, old Chuzzlewit, Scrooge — it is the same figure over and over again, the good rich man, handing out guineas.

Dickens does, however, show signs of development here. In the books of the middle period, the good rich man fades out to some extent. There is no one who plays this part in A Tale of Two Cities, nor in Great Expectations — Great Expectations is, in fact, definitely an attack on patronage — and in Hard Times, it is only very doubtfully played by Gradgrind after his reformation. The character reappears in a rather different form as Meagles in Little Dorrit and John Jarndyce in Bleak House — one might perhaps add Betsy Trotwood in David Copperfield.

But in these books the good rich man has dwindled from a ‘merchant’ to a render. This is significant. A rentier is part of the possessing class, he can and, almost without knowing it, does make other people work for him, but he has very little direct power. Unlike Scrooge or the Cheerybles, he cannot put everything right by raising everybody's wages.

The seeming inference from the rather despondent books that Dickens wrote in the fifties is that by that time he had grasped the helplessness of well-meaning individuals in a corrupt society. Nevertheless in the last completed novel, Our Mutual Friend (published 1864-5), the good rich man comes back in full glory in the person of Boffin.

Boffin is a proletarian by origin and only rich by inheritance, but he is the usual deus ex machina, solving everybody's problems by showering money in all directions. He even ‘trots’, like the Cheerybles. In several ways Our Mutual Friend is a return to the earlier manner, and not an unsuccessful return either. Dickens's thoughts seem to have come full circle. Once again, individual kindliness is the remedy for everything.

In the end, The LA Times piece and the position of CIW both want to adopt this Dickensian position: If all the people in the supply chain would be more charitable — if consumers would just pay more and retailers pass on the overage and producers pass on the payments — then the world would be better.

Perhaps the easiest and most reliable way to know that farmworkers have been treated decently is by buying what are known as fair trade products. Fair Trade USA is a nonprofit that works with growers around the world to help them operate their businesses at a profit while acting responsibly toward their employees and the environment. The organization also audits farms regularly to ensure that growers are living up to their agreements.

Fair trade products are labeled accordingly, usually including a black, white and green logo with the words “Fair Trade Certified.” But some stores have only a few such products; they would stock more if consumers requested them.

We respect the inclination behind Fair Trade. The desire to raise up people and communities is nothing but admirable.

Yet, the LA Times has it slightly wrong. Urging retailers to carry Fair Trade product will do almost nothing in the end.

Consumers buying Fair Trade product will lead to a lot more Fair Trade product being available. This, however, means that consumers would have to sacrifice — give up money — in order to enhance the conditions of Mexican laborers. That is what Fair Trade is — it is a movement that advocates paying more money for goods from developing countries and then using that extra money to improve the condition of workers and their communities.

Now there are a lot of problems with Fair Trade. We’ve discussed some of them in pieces such as these:

There also are plenty of questions about Fair Trade — Verification of standards is uncertain, the degree to which funds reach the laborer is uncertain, etc.

But the bigger issue is that Fair Trade places the consumer in the role of Scrooge — the poor conditions of the work force are caused by consumers’ lack of generosity, and workplace improvements could be resolved by simply being more generous — much like post-ghost-visit Scrooge traipsing around giving away turkeys and shillings.

The problem is that money doesn’t work like that. Dickens was a great dramatist, focusing the reader on deserving poor people like the Cratchits and, specifically, on poor Tiny Tim, whose death itself would be prevented by simple generosity and kindness.

The problem, of course, is that the economy doesn’t end there. If Scrooge takes money and helps Tiny Tim, we may, as readers, all feel good. In fact, though, that means Scrooge has less money to invest in a new factory and that factory would have supplied many jobs and helped many little children.

Equally, even if all consumers hear the story of the Mexican laborers and gladly pay more to help — the question always has to be where that money comes from. If it comes from charitable giving – then perhaps this effort will cause worse suffering as the cure for cancer is postponed. If it comes from investment, will the conditions of these particular people be enhanced only at the cost of jobs not created and services not provided? If the money comes from expenditures, well the prosperity of the Mexican workers might be purchased at the impoverishment of a textile worker in Lesotho or Bangladesh.

There are serious issues to be addressed. But people who offer jobs are not the evil ones — regardless of how bad those jobs are. The bigger question is why general living conditions throughout Mexico are so bad that people take those terrible jobs and see the jobs as a way to improve their lives.

In Mexico, you are dealing with an incredibly rich country that can’t quite get its act together. There is an immense corruption and a crony-capitalist culture. When we wrote about Wal-mart and allegations of bribery in Mexico, we titled our piece, “Wal-mart And Payoff In Mexico: Bribery Or Extortion?” because the political and economic culture in Mexico is inherently corrupt and an enormous obstacle to progress.

Mexico has loads of oil, for example, and it is relatively inexpensive to produce; yet while US oil production has been zooming, it collapses in Mexico:

It is in the transformation of the Mexican political and economic system that the answer lies. A reform is needed that will bring true democracy, an end to crony capitalism and will finally allow the entrepreneurial spirit of the Mexican people to give a new burst of prosperity to the country. If Mexico were more prosperous, it would offer its people more opportunities and nobody would accept jobs in such horrible conditions.

But the LA Times, with its Fair Trade urgings, and the CIW, with its Scrooge analogies, are not proposing any such changes. They see something bad and urge rich people — American consumers or Scrooge — to be more charitable.

That may improve the lot of the particular person being looked at, but it will not enhance overall levels of prosperity.

And these brought responses from a range of individuals. This one was from a new correspondent, who is involved in helping growers share information under terms permitted by the Capper-Volstead Act:

The indignation I felt as a former apple/pear/cherry grower to the Whole Fools…. oops, Whole Foods commercials will cement the fact that even if one of their stores was nearby, I would elect not to shop there. America’s healthiest grocery store? Surely the most expensive.

Now this correspondent weighs in on Whole Foods and its new marketing campaign:

Thank you for addressing the inherent issues in the Whole Foods Responsibly Grown Rating System. Some other big questions that come to mind include pricing strategies for the different levels, how claims for product shrink will be addressed with growers when consumers start leaving the "Unrated" or "Good" product behind, or what growers will be expected to do when there is an industrywide shortage and only the growers "in transition" have product.

It is not uncommon to find a small family farm in the vegetable growing industry, working dawn to dusk to deliver safe, wholesome, high quality products. However, because that small farm may never be in a position to install solar panels, be an industry leader in pest management, or protect bees and butterflies, they should not be penalized at the shelf either.

Bruce’s outrage was echoed in the outcry we heard from many growers, and Eric’s analysis of the situation is insightful.

For us, there are a few key points:

1) The Whole Foods standards are arbitrary. For example, any use of irradiation precludes inclusion in Good, Better or Best standards — but there are products, say Indian mangos, that are not admissible in the US without irradiation. Whole Foods says of its system that: “We measure performance and award points based on each farm’s progress in key areas of sustainability.” But how is it sustainable for these poor Indian growers to just give up on the US market?

2) There is no sense of costs and benefits. Every farm is different, and every crop is different. What if using a small amount of one pesticide eliminates the need for large amounts of other pesticides? What if using small amounts of one pesticide enables such a large increase in yield that the farm can pay its workers better or donate in its community generously. What if adding solar panels reduces the carbon footprint on the farm but removes valuable acreage from food production?

3) Is this all a distinction without a difference? In our piece A Walk Through Whole Foods And Why Its ‘Responsibly Grown’ Campaign Is Bad For Farmers, we went into a local Whole Foods and found the vendors were, pretty much, the same vendors one can find in quality supermarkets across the country. Whole Foods has gotten to a scale now where it needs to access the global produce supply chain. The notion that there is some special Whole Foods supply chain that doesn’t sell to the rest of American retailing is pretty much a myth.

4) Whole Foods has no capability to enforce these standards even if it cared to do so. We recently wrote here about a Los Angeles Times story on labor practices in Mexico. When it turned out that Whole Foods was one of the companies that had received produce from one of the suspect farms, Whole Foods responded by saying that the producer had “signed our social accountability agreement.” Note what Whole Foods did NOT say: It didn’t say that it hires Primus to inspect every farm every week to confirm compliance with its standards. It did not say that there is a Whole Foods employee in every field every day. It didn’t say that Whole Foods voluntarily pay $2US per pound over the market to get superior labor treatment. It just said that to get Whole Foods’ business companies simply have to sign a paper!

In the end, Whole Foods is telling everyone in America that it has a uniquely responsible supply chain — put another way, it is telling consumers that when they buy produce elsewhere, consumers are supporting irresponsible growing. That message is not true, and it is bound to depress consumption, which will hurt both farmers and the health of consumers. What kind of “values” would support such a campaign?

Many thanks to Bruce Grim and Eric Schwartz for weighing in on this important issue.